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Appendix 4.A: Theoretical framework

5.3 Future research

The findings and limitations of the thesis point to additional research opportunities. First, researchers should be interested in generalisable results. Therefore, future research should challenge the findings of Study 1 and Study 2 by exploiting similar reforms for different periods and institutional settings. Recent literature applies this procedure by providing first evidence based on a single tax change and then extending the results by examining several tax changes in an international sample (e.g., Jacob et al., 2019; Jacob and Todtenhaupt, 2020).

169 Further, the focus of this thesis relies on the effect of taxation on corporate decisions. Future research should also examine tax reforms affecting natural persons. It is important to examine the behaviour of individuals because income taxes account for a large share of tax revenues.

Since individuals can be customers, employees, entrepreneurs and shareholders, there are many tax reforms that can be exploited to shed more light on the behaviour of individuals. In addition, it should be investigated whether tax reforms that affect employees also have an impact on companies. For example, changes in the income tax rate or social security contributions affect the personnel costs of a company and could therefore potentially influence the investment decision of a company.

With respect to the third study, future research should employ comprehensive data at the level of banks’ affiliates to examine where and how affiliates’ economic activities are affected by the CbCR disclosure requirement. Further, additional research is necessary to examine why the effect of CbCR on tax avoidance only appears in the short-term (e.g., Joshi et al., 2020).

Following De Simone and Olbert (2020), it is plausible to assume that banks shift their tax avoidance activities to low-tax countries in Europe. In addition, it would also be worth to examine how the disclosure of tax information affects peers and in particular competitors. It could be assumed that firms learn about the tax practices of their peers via their disclosure of tax information (e.g., Brown and Drake, 2014; Bird et al., 2018).

In addition, researchers should shed more light on the effects of public disclosure of tax and tax-related information (e.g., Dyreng and Maydew, 2018). Therefore, new “exogenous shocks” must be analysed. For example, the German transparency register, which discloses the beneficial owner of a company, might be an interesting setting to examine the reaction of companies and in particular of companies with a beneficial owner in a tax haven. The stream of research on public disclosure of tax and tax-related information is becoming increasingly important as different stakeholder groups and society demand that companies pay their fair share of taxes. This increased focus on the tax avoidance behaviour of firms is also driven by various initiatives of the OECD and the EU.

Further, more research is needed on the real effects of tax avoidance (Study 3). The theoretical framework proposed by Dyreng et al. (2020) suggests that tax avoidance can affect labour and capital if the profit function of a company includes the costs and benefits of tax avoidance.

Since prior literature in this field of research is scarce (e.g., De Vito et al., 2019), more knowledge in this area is necessary as many firms are heavily involved in tax avoidance.

170 Finally, prior literature on the effect of taxation on private firms (Study 1) and financial institutions (Study 2) is still limited. More research is required to understand how the particular environment in which private firms and financial institutions operate affects their responses to changes in taxation. For example, prior literature finds that private firms are, in general, financially constrained because they are unlisted (e.g., Gao et al., 2013). Further, they might have a closely held ownership structure (e.g., Michaely and Roberts, 2011) and managers who are also owners of the firm (e.g., Denis and Denis, 1994). First evidence in the literature indicates that these features influence the reaction of firms to changes in taxation (e.g., Chen et al., 2010; Jacob and Michaely, 2017). With respect to financial institutions, it is still unclear how regulatory requirements affect their responses to tax changes.

Overall, there are still many unanswered questions in the empirical tax research, in particular regarding private firms, financial institutions and the real effects of disclosure requirements and tax avoidance. Researchers should look for more exogenous shocks, i.e. tax reforms, and exploit them with appropriate econometric tools to draw causal inferences.

“If the data were perfect, collected from well-designed randomized experiments,

there would hardly be room for a separate field of econometrics.”102

102 Griliches (1986, p. 1466).

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